Rally Synthesis Inc. manufactures and sells 80 bottles per day. Fixed costs are $23,000 and the...
Rally Synthesis Inc. manufactures and sells 80 bottles per day. Fixed costs are $23,000 and the variable costs for manufacturing 80 bottles are $40,000.
Each bottle is sold for $1,500. How would the daily profit be affected if the daily volume of sales drop by 20%?
A. profits are reduced $24,000
B. profits are reduced by $ $8,000
C.profits are reduced by $ $41,000
D.profits are reduced by $ 16,000
Homework Answers
Given for Rally Synthesis Inc.
Fixed cost = $23000
Variable cost = $40000
So, variable cost per bottle = 40000/80 = $500 per bottle
Selling price = $1500 per bottle
So, contribution margin = 1500-500 = $1000 per bottle
Profit when 80 bottles are sold in a day = 80*1500 - 23000 = $97000
When sales drop by 20%, new sales = 80*0.8 = 64 bottles per day
So profit = 64*1500 - 23000 = $73000
So profits are reduced by $97000 - 73000 = $24000
So option A is correct.
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